A state does not get to tax all the income
belonging to a corporation doing business
within its borders, but may only tax that part
which represents its share of the income
generated by the corporation. Determining the
share is, however, fraught with difficulty, since
assigning the actual profit created in a state is
next to impossible. If XYZ corporation
produces composted fertilizer in Wyoming and
ships it to a Utah outlet for sale, where does
the profit occur? Utah may like to say that
since all the sales occur in Utah, the only cost
that can be subtracted from Utah sales is the
actual cost of production in Wyoming. The
firm may want to take as much of the profit in
Wyoming as possible since profits are not
taxed there, saying the only profit occurring in
Utah is the revenue minus the retailing cost
minus the price at the border which would
include a healthy profit for Wyoming
production.

To get around endless arguments about
where the "true profit" occurred, the general
practice among the states is to divide the total
profit according to the firm's relative economic
presence in the state. Utah defines the
presence, as do many other states, as the
average of the wage share, the sales share, and
the property share in Utah. (See Schedule J in
appendix A for further clarification.) The
fraction is called the "apportionment fraction,"
and when it is applied to an amount, such as
"net income" it is called "apportioned net
income." In simple terms, an apportioned
amount is that amount that is relevant for Utah
purposes.

In this report, with the exception of the
section on apportionment, all data is reported
in apportioned form as it is relevant to Utah.

Our Fair Share of What?

This is obviously not the place to include
a treatise on the corporate tax base, since
determining what goes in the corporate tax
base and what is allowed as a deduction is very
complicated, with many fine nuances and
details. As a rule, the state tax base is close to
the federal base, with minor exceptions, which
we will survey here. (The basic federal return,
1120, is also included in appendix A.)

Chart 2.1 plots the magnitude of various
income measures on the vertical axis, for tax
years 1994 and 1995. The first table shows the
raw data and the second shows the relation to
federal taxable income. For these two years
only about six percent of income escapes
taxation due to Utah provisions or due to not
being able to tax non-business income
generated out of state. The dollar amounts
reported in this section are for firms paying
taxes on the basis of income rather than due to
the minimum tax, since the income magnitudes
are irrelevant in determining taxes for these
firms. Appendix B shows much more detail as
well as separate table for minimum tax firms.

TAX PAYMENTS BY INCOME CLASS

Table 2.2 and the accompanying graph
report the dollar value and share of taxes paid
for non-minimum taxpayers, as reported on
tax returns for 1994 and 1995. The most
obvious fact is that a very large share of taxes
are paid by the large corporations. On
average, companies with an apportioned
income larger than $1 million paid more than
78 percent of the taxes, and those with income
less than $100,000 paid less than 6 percent of
the taxes.

It is worth noting that taxes paid
increased by well over 15 percent between
these two years, while the number of non-minimum taxpayers was increasing by less than
8 percent. The large increase in the taxes paid
by the top brackets and the actual decrease in
taxes paid by some middle incomes may attract
unwarranted attention. A glance at the detailed
appendix tables for 1994 and 1995 reveal that
the number in the top two classes, for
example, rose from 72 to 93, whereas the
number in the $40,000 to $75,000 class
actually fell. Thus we are observing the
migration of firms between classes as well as
the fortunes of firms within a class. As this
paragraph demonstrates, a real understanding
of corporate tax developments requires
consulting the detailed appendices.

TAX RETURNS BY INDUSTRY

Table 2.3 and the chart are similar in content and
structure, to the previous table, but includes all
corporate taxpayers. The non-coded sector
makes the largest contribution to corporate tax
receipts, paying over $30 million for returns
filed in 1995. This figure includes minimum
tax payments as well as regular taxes. The
manufacturing sector follows next with
payments over $28 million, and agriculture is
the trailing sector, paying $1.1 million. The
largest growth in taxes were in mining (110%),
non-coded (29%), and manufacturing (20%).
Transportation, communication and utilities (-10%) saw decreases in taxes paid.

Some readers may be confused by the
low share for services, since much has been
made recently of the growing importance of
services. The discrepancy is explained by the
narrow definition of services used, which
includes basically personal and professional
services. When some analysts indicate services
are more than 50 percent of the economy, for
example, they are generally including the last
five major groups. Additionally, many of the
growing service firms are not corporations, or
are S-corporations which are not subject to
corporate income taxes.